On April 18, 2023, the Supreme Court heard oral arguments in two very important whistleblower cases, United States ex rel. Schutte v. Supervalu and United States ex rel. Proctor v. Safeway, and appeared likely to overrule a Seventh Circuit Court of Appeals decision that threatened to undermine the Government’s ability to fight fraud—potentially good news for whistleblowers, the government, and taxpayers.
The False Claims Act makes it illegal for companies and individuals to knowingly submit false claims for payment to the government. Violators are subject to triple damages, meaning that they have to pay back up to three times the amount of any claims that were paid, along with substantial penalties for each claim. Whistleblowers who have knowledge of violations of the False Claims Act can file “qui tam” lawsuits on behalf of the government and may be eligible for a reward of 15 to 30% of any recovery.
The cases before the Supreme Court concern the False Claims Act’s knowledge requirement. To be liable under the Act, a defendant must “knowingly” submit false claims. The Seventh Circuit Court of Appeals, which is the federal court of appeals for Wisconsin, Indiana, and Illinois, held that a defendant’s subjective belief about whether it is committing fraud is not relevant to whether it “knowingly” violates the False Claims Act when it submits false claims. Instead, the only relevant question is whether the defendant’s conduct was consistent with an objectively reasonable interpretation of the law.
The Seventh Circuit’s ruling not only had the potential to undermine the False Claims Act, but it also could lead to bizarre results. As the attorney for the whistleblowers argued to the Court, the Seventh Circuit’s rule “would permit some of the worst offenders to escape liability … [It] would allow a defendant who presented false claims to admit that he wanted to break the law and yet simultaneously deny that he acted with [knowledge].” And as Taxpayers Against Fraud, a non-profit public interest organization dedicated to combating fraud against the government wrote in its friend-of-the-court brief, the Seventh Circuit’s rule would give defendants “a get-out-of-liability-free card,” which would threaten the False Claims Act’s tremendous success. (Outten & Golden whistleblower & retaliation attorney Dave Jochnowitz was one of the authors of that brief.)
Thankfully, several Supreme Court Justices suggested in the oral argument that they disagreed with the Seventh Circuit’s rule. Justice Neil Gorsuch told counsel for the defendant that the language of the False Claims Act made the defendants’ argument “pretty hard.” By contrast, Justice Elena Kagan said to the whistleblower’s attorney, “your case is the easy case, isn’t it?” And Justice Ketanji Brown Jackson told the attorney for the government that she was “with Justice Kagan.”
Of course, things can change between oral argument and the written decision. Some of the other Justices suggested some concerns about open-ended liability for businesses under the False Claims Act. But on the question presented to the Court—whether a defendant’s subjective belief about whether it is committing fraud matters to the False Claims Act—the Justices seemed inclined to side with the whistleblowers.